Question

How much would you pay for 20-year, 8% annual coupon paid with semiannual frequency, and face value of 1000 bonds? Nominal annual interest rate is 7%. Show Calculations

Answer #1

K = Nx2 |

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |

k=1 |

K =20x2 |

Bond Price =∑ [(8*1000/200)/(1 + 7/200)^k] + 1000/(1 + 7/200)^20x2 |

k=1 |

Bond Price = 1106.78 |

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20
Par
value of bond
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